It is the lowest ever 5-year fixed rate mortgage and is part of a new range including a 7- year fixed rate mortgage at 3.99%. Both products have a £1,499 booking fee.
Peter Dockar, head of mortgages at HSBC, said: "Every borrower has different needs from their mortgage. We recognise that many are looking for certainty with their mortgage payments over the longer term and have launched these products to meet that demand.
"This is the lowest ever 5-year fixed rate to come to the market and with the security of our retail deposit funding we are committed to offering competitive rates to benefit our customers with what is for many, their largest monthly commitment."
HSBC also launched a range of tracker and discount rates including:
60% LTV 2.49% 2-year discount (1.45% discount off HSBC SVR) - £499 fee
60% LTV 2.99% fee-free lifetime tracker (2.49% above BoE BR)
90% LTV 3.84% fee-free 2-year discount (0.10% discount off HSBC SVR)
90% LTV 4.79% lifetime tracker (4.29% above BoE BR) - £999 fee
Andrew Montlake, director at Coreco, said: "In offering a 5-year fixed rate below the 3% level HSBC has shaken up the fixed rate market, setting a new benchmark which we warmly welcome.
"Cleverly timed to coincide with the government’s Funding For Lending scheme it is the equivalent of a glove slapped into the face of every major lender, challenging them to get anywhere near them.
"It will be interesting to see if on the back of the government’s new scheme lenders follow through with promises to make more lending available at competitive rates such as this.”
Montlake warned that “as with all HSBC products” he expected many would-be borrowers will end up disappointed as they fail to get through the many hoops the bank make borrowers go through to qualify.
And he added: “Reports we get from clients is that service is already slow and will no doubt continue to suffer.
"We have rescued two clients this week alone from HSBC who were exasperated with the length of time the process was taking.
"For those who need to move quickly, especially in the competitive London market, the cheapest rate on the market is useless if you end up losing the home of your dreams."
But Lea Karasavvas, managing director at Prolific Mortgage Finance, added: "I see this as a very positive step in the market and one that many consumers will benefit from even if they do not fit the HSBC criteria.
"The publicity that has surrounded this historic rate launch has been phenomenal already and will apply pressure on other lenders to address their product ranges also.
"Whilst they may not be able to compete with HSBCs reduction, any reduction is welcome and such aggression may push other lenders to take more off their margins in order to stay close to HSBC let alone matching them.
"With 5-year swap rates at around 1.3% there is still enough meat on the bones for HSBC to do well off this and other lenders would do well to follow this example.
"Such a phenominal rate will inevitably result in a huge influx of applications and this will effect service levels for sure, so time sensitive transactions may not work here,but for those with time on their side you can simply do nothing but applaud HSBC for the rate and for kickstating the rate wars again. Right now, they are leading the way and we should all applaud their efforts in launching this."
